Off. of People's Counsel v. Pub. Serv. Comm'n

Maryland Office of People’s Counsel v. Maryland Public Service Commission., No. 0789, September Term 2019. Opinion by Wells, J. PUBLIC UTILITIES—GAS—STATUTORY INTERPRETATION Under Public Utilities Article § 4-211, “when determining necessary and proper expenses while setting a just and proper rate for a gas company,” the Maryland Public Service Commission “may include all costs reasonably incurred by the gas company for performing environmental remediation of real property in response to a State or federal law, regulation or order if the remediation relates to real contamination of real property and the real property is or was used to provide manufactured or natural gas directly or indirectly to the gas company’s customers or predecessors.” PUBLIC UTILITIES—GAS—STATUTORY INTERPRETATION Public Utilities § 3-203 requires a court find every final decision or order of the Maryland Public Service Commission is prima facie correct and shall be affirmed unless some defect, such as unconstitutionality, exceeding statutory authority, or rendering an arbitrary or capricious decision, among other things, is clearly shown. PUBLIC UTILITIES—GAS—STATUTORY INTERPRETATION In setting a “just and proper rate,” Public Utilities Article § 4-211 does not require the Maryland Public Service Commission to exclude from its calculus a portion of acreage that was formerly unused in the manufacture of natural gas when that same portion of acreage is joined to real property that had, in fact, been used to manufacture gas and now requires environmental remediation. To do otherwise would render the statute a nullity.

Circuit Court for Baltimore City Case No. 24-C-18-006881 REPORTED IN THE COURT OF SPECIAL APPEALS OF MARYLAND No. 0789 September Term, 2019 _____________________________________ MARYLAND OFFICE OF PEOPLE’S COUNSEL v. MARYLAND PUBLIC SERVICE COMMISSION, ET AL. ______________________________________ Reed, Wells, Zarnoch, Robert A., (Senior Judge, Specially Assigned), JJ. ______________________________________ Opinion by Wells, J. ______________________________________ Filed: June 1, 2020 Pursuant to Maryland Uniform Electronic Legal Materials Act (§§ 10-1601 et seq. of the State Government Article) this document is authentic. Suzanne Johnson 2020-10-23 15:34-04:00 Suzanne C. Johnson, Clerk Appellee, Columbia Gas of Maryland, Inc. (“Columbia Gas”) sought approval from the Maryland Public Service Commission (“the Commission”) to increase utility rates for several reasons among which was to help pay for environmental remediation of its site in Hagerstown. After negotiations, the parties agreed to the rate increase, but could not agree on the addition of the remediation costs. As a result, the parties conducted a hearing before the Chief Public Utility Law Judge (“PULJ”), who ruled that Columbia Gas could include the remediation costs in the rate increase.

Appellant, the Maryland Office of People’s Counsel (“OPC”), appealed that decision to the Commission, which agreed with the PULJ. OPC then petitioned for judicial review in the Circuit Court for Baltimore City. After a hearing, the circuit court affirmed the Commission. OPC now appeals the circuit court’s ruling and raises two issues for our review: I. Did the Commission err as a matter of law in failing to apply Public Utilities Article § 4-211’s limitation on a gas utility’s ability to recover environmental remediation expenses from its customers?

II

In failing to offer any explanation for its implicit rejection of OPC’s argument regarding the Statute’s limitation on a gas utility’s ability to recover environmental remediation expenses, did the Commission err as a matter of law in violating § 3-113 of the Public Utilities Article, or act arbitrarily or capriciously? For the reasons that follow, we affirm. FACTS AND PROCEDURAL HISTORY On April 13, 2018, Columbia Gas of Maryland (“Columbia Gas”) filed an application with the Public Service Commission of Maryland (“the Commission”) under Maryland Code, (1998, Repl. Vol. 2019), Public Utilities Article (“PUA”) §§ 4-203 and 4- 204 to increase its base rates to its customers by $5,999,212.00.

The request arose for multiple reasons, including Columbia Gas’ desire to remediate industrial waste from its real property. A. The Contaminated Site The information contained in this section is taken from the findings of the Chief Public Utility Law Judge’s (“PULJ”) report dated October 2, 2018. These facts are largely undisputed. From 1887 to 1952, the Hagerstown Heat & Light Plant, later known as the Hagerstown Gas Company, (“Hagerstown Gas”) manufactured gas on what was then its approximately seven-acre site located in Hagerstown.

The carbureted water-gas process Hagerstown Gas used produced a residue of coal and coke that was discharged into a pond on the company’s property. This “tar pond” would become the focus of litigation, including this appeal. In 1952, Hagerstown Gas sold approximately 2.5 acres of its property, which included the tar pond, to the Bester-Long Company, a road construction business. In 1975, Bester-Long sold the 2.5-acre tract to Richard F. Kline, Inc., another construction company.

Twelve years later, in 1987, Kline conveyed 3.85 acres, encompassing the 2.5- acre tar pond site, to Cassidy Trucking, Inc. Cassidy Trucking later expanded its real property holdings to become a 5.82-acre parcel known as “the Cassidy Property.” 2 B. Commission Case No. 9316: Columbia Gas I In 1986, the Maryland Department of Health and Mental Hygiene (“DHMH”) 1 investigated possible environmental contamination at the former Hagerstown Gas site. By 2002, the Maryland Department of the Environment (“MDE”), found that there were likely potentially hazardous by-products from the manufactured gas process on the property. In the words of one MDE report, the area near the former tar pond displayed “elevated levels of constituents common to urban development that may also be associated with MPG (Manufactured Gas Plant) residuals.” 2 Prompted by these investigations and the possible use of the federal Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”),3 42 U.S.C. §§ 9601-9675 , Columbia Gas’ parent company, NiSource, Inc., sought to remediate any waste by-products from its Hagerstown site by participating in Maryland’s Voluntary Clean-up 1 As of June 30, 2017, DHMH is called the Maryland Department of Health. The Maryland Department of Health website: shorturl.at/hIOY9 2 At some point in time the tar pond had been filled-in. 3 The Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), 42 U.S.C. §9601 et seq.

(1980). The Comprehensive Environmental Response, Compensation, and Liability Act -- otherwise known as CERCLA or Superfund -- provides a Federal "Superfund" to clean up uncontrolled or abandoned hazardous-waste sites as well as accidents, spills, and other emergency releases of pollutants and contaminants into the environment. Through CERCLA, the U.S. Environmental Protection Agency was given power to seek out those parties responsible for any release and assure their cooperation in the cleanup. Information from the United States Environmental Protection Agency website: https://bit.ly/2LLKxBT. 3 Program (“VCP”).4 One obstacle to NiSource participating in the VCP was that it did not own the tar pond site, which was then located on the adjacent Cassidy Property.

As NiSource’s representative explained at the hearing before the PULJ, NiSource decided to try to purchase the Cassidy Property to “reduce remediation costs, avoid litigation (with Cassidy Trucking and others) and minimize transaction costs associated with its assessment and remediation of the property.” In January 2013, NiSource successfully purchased the Cassidy Property. That same year, Columbia Gas sought approval from the Commission, in Case No. 9316, for a rate increase to offset the remediation costs, among other reasons. Following an evidentiary hearing, the PULJ found that the site of the Cassidy Property was not “used and useful” in providing utility service to its customers under the then-operative statute, PUA § 4-101, and did not approve a rate increase. In other words, the Commission found that because only 2.5 of the Cassidy Property’s 5.85 acres had previously been used by Hagerstown Gas for the manufacture of gas, Columbia Gas could not pass on the cost to remediate the Cassidy Property to its customers.

Columbia Gas sought judicial review in the Circuit Court for Washington County, which affirmed the Commission. Columbia Gas then filed an appeal to this Court. 4 The Maryland Voluntary Cleanup Program or VCP authorized by Maryland Code, (1982, 2013 Repl. Vol.) Environmental Article (“EA”) § 7-503(b) is designed to: “(1) Encourage the investigation of eligible properties with known or perceived contamination, (2) protect public health and the environment where cleanup projects are performed or need to be performed; (3) Accelerate cleanup of eligible properties; and (4) Provide predictability and finality to the cleanup of properties.” Information acquired from the Maryland Department of the Environment website: https://bit.ly/3eqPIni. 4 We affirmed the circuit court. Columbia Gas v. Public Service Commission, 224 Md. App. 575 (2015).

In reaching our decision, we observed that the Commission’s ratemaking policy under PUA § 4-101 required a “just and reasonable rate” that (1) does not violate any provision of this article; (2) fully considers and is consistent with the public good; and (3) except for rates of a common carrier, 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. at 582 (emphasis added). After analyzing the record, we concluded that Columbia Gas “failed to demonstrate a nexus between the Cassidy Property and the services its customers received from it to be considered used and useful for ratemaking purposes.” Id. at 586. We, therefore denied Columbia’ request for a rate increase.

The Court of Appeals denied Columbia Gas’ petition for a writ of certiorari. Id. 445 Md. 488 (2015). C. A Change in the Law: Public Utilities Article § 4-211 In response to Columbia Gas, during the 2016 session of the General Assembly a bill was introduced to strike the “used and useful” language from PUA § 4-101. That effort failed.

However, during the 2017 legislative session, S.B. 355/H.B. 414 passed and became law that same year. Subsequently codified as PUA § 4-211, the statute, in pertinent part, states: (a)(1) Except as provided in paragraph (3) of this subsection, when determining necessary and proper expenses while setting a just and reasonable rate for a gas company, the Commission may include all costs reasonably incurred by the gas company for performing environmental remediation of real property in response to a State or federal law, regulation, or order if: 5 (i) the remediation relates to the contamination of the real property; and (ii) the real property is or was used to provide manufactured or natural gas service directly or indirectly to the gas company’s customers or the gas company’s predecessors. (2) Environmental remediation costs incurred by a gas company may be included in the gas company’s necessary and proper expenses regardless of whether: (i) the real property is currently used and useful in providing gas service; or (ii) the gas company owns the real property when the rate is set. * * * (4) Environmental remediation costs incurred by a gas company may not be included in the gas company’s necessary and proper expenses if a court of competent jurisdiction determines that the proximate cause of the environmental contamination is a result of the gas company’s failure to comply with a State or federal law, regulation, or order in effect when the contamination occurred. With this change in the law, Columbia Gas again sought to recover environmental remediation costs for the Cassidy Property.

D. Commission Case No. 9480: Columbia Gas II In April 2018, Columbia Gas filed a new application with the Commission, designated case number 9480. As a result of negotiations, Columbia Gas, the Office of People’s Counsel (“OPC”), and the Commission’s technical staff unanimously agreed to each component of a rate increase except the amount for the environmental remediation costs for the Cassidy Property. On July 31, 2018, the PULJ conducted an evidentiary hearing on the issue of the cost of environmental remediation for the Cassidy Property. At 6 the hearing, the Commission Staff and Columbia Gas presented evidence in favor of the rate increase, and OPC presented arguments against.

After the hearing, in a set of findings and a proposed order dated October 2, 2018, the PULJ approved an adjusted rate inclusive of the cost of environmental remediation for the Cassidy Property. In reaching his decision, the PULJ preliminarily found that PUA § 4-211 was not ambiguous and did not require an examination of the statute’s legislative history. As to the merits, the PULJ undertook a straightforward analysis of “how Columbia [Gas’] request to recover remediation costs fits within the statute and its criteria.” Looking at the first criteria found in PUA § 4-211(a)(1), whether the remediation costs were incurred as a response to a federal or state regulation or law, the PULJ found that as a result of the DHMH and MDE investigations spanning decades, Columbia Gas entered into the VCP to help pay for the remediation. Further, the PULJ concluded that CERCLA encouraged environmental cleanups of this scale.

Although no state or federal body had ordered NiSource to clean up the Columbia Gas site, as OPC noted, the PULJ nonetheless found that the remediation effort clearly was in response to state and federal laws or regulations, as the statute’s first prong required. When considering the second prong, -- that the remediation costs be related to the contamination of real property, -- and third prong -- “the real property is or was used to provide manufactured or natural gas service directly or indirectly to the gas company’s customers or the gas company’s predecessors,” -- the PULJ had reached the heart of the dispute. The PULJ noted that the parties agreed that approximately 4.0 of the 5.82 acres 7 comprising the Cassidy Property required remediation. The parties disagreed whether the customers should bear the cleanup costs of the approximately 1.5 acres not previously used to manufacture gas.

OPC asserted that the apportioned costs include only the cleanup of the contaminated 4.0 acres. Columbia Gas argued that the word “relates,” as used in the statute, took into account the possibility that contaminants migrate, and, therefore, the cost to remediate all of the Cassidy Property should be factored into a fair rate. The PULJ agreed with Columbia Gas, finding OPC’s calculation of costs would alter the “clear and unambiguous” meaning of the statute by “adding restrictions where none exist.” The PULJ reasoned that PUA § 4-211(a)(1)(i-ii) only required the real property in question to have been previously used for the provision of service to manufactured gas customers. The fact that the former tar pond is now part of a bigger parcel, in the PULJ’s opinion, was irrelevant.

Further, the PULJ found that the spread of contamination could be “directly linked to the tar pond.” “The contamination’s spread beyond the 2.5 acres is directly linked to manufactured gas service previously provided [to Hagerstown Gas’] customers.” More pointedly, the PULJ rejected OPC’s argument because he found that OPC was arguing the applicability of the “used and useful” standard when the legislature had specifically written that language out of the statute when it adopted PUA § 4-211. In the remaining sections of the PULJ’s findings, the PULJ undertook an analysis of the financial costs that the Columbia Gas’ customers would have to bear, finding that with regard to the Cassidy Property, the cost to remediate the site would be $318,313.00. Any future costs would have to be determined. Additionally, the PULJ analyzed whether 8 any other entities potentially could be liable for the costs of remediation.

The PULJ rejected the idea of seeking financial contribution from businesses such as Cassidy Trucking, CSX Realty (from whom Cassidy Trucking purchased a tract that also comprised the Cassidy Property’s 5.82 acres), and Central Chemical Corporation, a Superfund site located adjacent to Columbia Gas’ site, finding in each case that the evidence was insufficient to hold any of the named businesses responsible for the costs of the cleanup. The PULJ’s order incorporated the provisions of the negotiated settlement and included the costs to remediate the Cassidy Property in the proposed rate adjustment. OPC appealed to the Commission, arguing that PUA § 4-211’s language is ambiguous. The Commission disagreed, finding that PUA § 4-211 was not ambiguous.

In the Commission’s analysis, the legislature’s purpose in drafting the statute was to remove the “used and useful” language from PUA § 4-101 and specifically allow Columbia Gas to recover the remediation costs for the Cassidy Property. The Commission reiterated the PULJ’s finding that “[t]o attack the statute as ambiguous and rely on extraneous sources to understand the statute[’]s meaning is futile.” In other words, the Commission found OPC’s interpretation of the statute – that would require severing 1.5 acres from the Cassidy Property -- would render the plain language of the statute meaningless. The Commission adopted the PULJ’s findings and signed the proposed order. On December 21, 2018, OPC petitioned for judicial review.

Before the Circuit Court for Baltimore City, OPC argued that in properly applying the language of PUA § 4- 211 to determine what amount of the remediation costs should be borne by its customers, Columbia Gas was required to subdivide the Cassidy Property into two parcels: one for the 9 property on which Hagerstown Gas manufactured gas and one parcel on which the production of natural gas did not occur. OPC argued the Commission’s failure to explain why the property should not be subdivided violated PUA § 3-113 which requires the Commission to state the grounds for its conclusions. As the Commission did not address or otherwise state why the Cassidy Property should not be subdivided, OPC argued the Commission’s decision was “arbitrary and capricious.” In response, Columbia Gas and the Commission argued that OPC was attempting to resurrect the “used and useful” requirement from the former statute. Columbia Gas argued that it had met all of the statutory requirements under PUA § 4-211, namely, that the Cassidy Property is, in fact, real property, part of which was used to manufacture gas.

The circuit court sustained the Commission. It found that the contamination located on part of the Cassidy Property, in fact, “related” to real property owned by Columbia Gas which had been used in the manufactured gas process, satisfying the requirements of PUA § 4-211(a)(1)(i) and (ii). The court concluded that the environmental harm continued to spread throughout the whole of the Cassidy Property. Finally, the court concluded that OPC did not prove that the Commission acted unreasonably in reaching its decision.

OPC filed a timely appeal. Additional facts may be discussed, as needed. DISCUSSION I. The Commission Properly Applied PUA § 4-211 to Columbia Gas’ Request for a Rate Increase The central question here is whether the Commission properly included the costs to 10 remediate the entire parcel known as “the Cassidy Property” in setting a new utility rate for the customers that Columbia Gas services. As we will explain, our conclusion is that the Commission’s decision was correct.

As in any appeal from judicial review of an agency decision, we look through the decision of the circuit court to examine the agency’s ruling. Maryland Office of People’s Counsel v. Maryland Public Service Commission, 461 Md. 380, 391 (2018) (citing Accokeek, Mattawoman, Piscataway Creeks Community Council, Inc. v. Public Service Commission, 451 Md. 1, 11 (2016)). Most importantly, because this is a review of a decision of the Maryland Public Service Commission, Maryland Code, (1998, 2019 Repl. Vol.), PUA § 3-203 controls: 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.

Further, we are bound by the Court of Appeals’ prior decisions regarding this statute. The Court has stated, [w]hile this Court has made clear that a decision of the PSC is subject to judicial review, it will not be disturbed on a basis of a factual question except upon clear and satisfactory evidence that it was unlawful and unreasonable. Such a decision is accorded the respect due an informed agency that is aided by a competent and experienced staff. Questions of law, however, are completely subject to review by the courts.

This is consistent 11 with the standard of review applicable to administrative agencies generally. Severstal Sparrows Point, LLC v. Public Service Commission of Maryland, 194 Md. App. 601, 610-611 (2010) (quoting Town of Easton v. Public Service Commission of Maryland, 379 Md. 21, 31-32 (2003) (internal citations omitted)). On pure questions of law, our review is de novo. See Maryland Office of People’s Counsel, 461 Md. at 394 (internal citations omitted).

However, we give the Commission’s interpretation of a statue it enforces, such as PUA § 4-211, a heightened degree of deference. The Court of Appeals has stated that this degree of deference is dependent on several factors. One factor is the length of time an agency’s interpretation has been consistently applied. Office of People’s Counsel v. Public Service Commission, 355 Md. 1, 17 (1999).

Additionally, the Court reasoned that if the agency’s decision was reached after a contested adversarial process, then the agency’s interpretation of a statute should be afforded greater weight than if the decision was reached without such a process. 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-reasoned opinion of an expert body. Id.

In undertaking our analysis, we begin with the text of the relevant portion of the statute, PUA § 4-211, which states: (a)(1) Except as provided in paragraph (3) of this subsection, when determining necessary and proper expenses while setting a just and reasonable rate for a gas company, the Commission may include all costs 12 reasonably incurred by a gas company for performing environmental remediation of real property in response to a State or federal law, regulation, or order if: (i) The remediation relates to the contamination of the real property; and (ii) The real property is or was used to provide manufactured or natural gas service directly or indirectly to the gas company’s customers or the gas company’s predecessors. (2) Environmental remediation costs incurred by a gas company may be included in the gas company’s necessary and proper expenses regardless of whether: (i) The real property is currently used and useful in providing gas service; or (ii) The gas company owns the real property when the rate is set. Before this Court, OPC argues that PUA § 4-211(a)(1)(i) limits which environmental remediation costs Columbia Gas may recover from its customers. In OPC’s view, under PUA § 4-211(a)(1)(ii), the costs of remediation may only be associated with land that was once used for manufactured gas service related “directly or indirectly to the gas company’s customers or the gas company’s predecessors.” OPC, citing Mayor and City Council of Baltimore v. Chase, 360 Md. 121, 128 (2000), argues the Commission’s decision rendered this provision “superfluous” or “nugatory,” as the Commission did not limit remediation costs only to Columbia Gas’ site that was previously “used and useful” for gas service.

OPC readily admits that PUA § 4-211 changed the requirement that the land subject to remediation must “currently” be “used and useful.” OPC argues PUA § 4- 211’s plain language requires that the land to be remediated “must have at least been 13 previously used and useful” in the manufacture of gas. In other words, OPC asserts that before Columbia Gas can recover the cost to remediate a parcel of land “some utility customers, even from a different era, did benefit from the land in question.” At the heart of OPC’s argument is the fact that of the 5.82 acres that comprised the Cassidy Property only 4.0 acres require remediation. OPC maintains that Hagerstown Gas, Columbia Gas’ predecessor, used 2.5 of the 4.0 acres for manufactured gas production. In OPC’s estimation, approximately 1.5 acres were never used for that purpose.

OPC argues the Commission’s ruling, that customers bear the cost of remediating all of the Cassidy Property, is contrary to the Court of Appeals’ holding in Centre Ins. Co. v. J.T.W., 397 Md. 71 (2007). There, the Court instructed that when engaged in statutory interpretation, a reviewing court should “avoid a construction of the statute that is unreasonable, illogical, or inconsistent with common sense.” Id. at 81 . OPC argues that the Commission’s decision to include the cost of remediation for the Cassidy Property would be contrary to the plain meaning of PUA § 4-211 and common sense.

The Commission’s response is the subdivision of the Cassidy Property into two parcels, one on which manufactured gas was produced and one parcel on which that activity did not occur solely to restrict remediation costs, would be to read restrictions into PUA § 4-211 that the General Assembly never intended to add. In the Commission’s view, OPC’s interpretation of PUA § 4-211(a)(2)(i) goes against well-established tenets of statutory interpretation. The Commission cites to Bottini v. Department of Finance, 450 Md. 177, 188 (2016), where the Court of Appeals unequivocally stated that when engaged in statutory interpretation, a reviewing court must “neither add nor delete