Public Service Commission v. City of Annapolis

WILNER, Judge. In 1974, the General Assembly enacted a new § 8.14.1 to the Zoning and Planning article of the Code (Md.Code Ann. art. 66B). The law authorized the counties and municipal ⁵⁹⁵ corporations of the State to enact ordinances requiring utilities with overhead lines in historic districts to relocate those lines underground; it directly required the utilities having overhead lines in the historic districts of Annapolis and Frederick to place them underground. Although there is little in the way of officially recorded legislative history with respect to that law, it seems evident from amendments put on during the legislative process that the principal focus of the Legislature was not so much on the desirability of burying the overhead lines as on who was to bear the cost of the work.

That is the issue before us in this appeal. There appear to be three categories of cost involved: (1) digging up the streets or sidewalks, removing the existing overhead wires and facilities, and placing them underground; (2) repaving the streets and sidewalks; and (3) reconnecting the affected customers to the underground lines. The law makes clear that the third category of cost is to be borne by the affected customers, although it authorizes the county or city to advance the reconnection costs and recover them through a special benefit assessment against property in the historic district. We are not directly concerned with that category in this case.

Initially, the bill would have required the utilities to advance the other capital costs of the relocation and to recover those costs through their general rate structure. In that regard, it proposed to enact a new § 72A to the Public Service Commission Law (Md.Code Ann. art. 78) stating: “The Public Service Commission shall, at the time of setting rates for an affected utility, permit the inclusion in the general rate base of capital costs associated with the relocation underground of utility lines and facilities in connection with projects required by Section 8.14.1 of Article 66B of the code.” See, 1974 Md.Laws, ch. 651 (Sen.Bill 805). That approach would have had the dual effect of spreading the cost among all customers of the utilities — not just ⁵⁹⁶ thosé living in the historic districts — and of possibly allowing the utilities to recover more than their actual cost, 1 and it was discarded. In its place, the Legislature recrafted proposed § 72A; as enacted, it reads as follows: “With respect to the net capital costs associated with the relocation underground of utility lines and facilities in connection with projects required by § 8.14.1 of Article 66B of the Code, the Public Service Commission shall prescribe the amount of the monthly surcharge required to support the said costs and determine which customers of the applicable utility are subject to the surcharge, or shall include in the rate base the related net capital costs, or shall adopt any other method to appropriately apportion the costs.

However, in no event shall the utility be required to pay more than 50 percent of the net capital costs. The county, municipal corporation, or Baltimore City is authorized to make appropriations for such relocation projects from any appropriate federal, State, and local funds it receives for this purpose.” It is evident from this statute that the Legislature did not intend for the utilities or their customers to bear more than 50% of the “related net capital costs” of the relocation, and that it expected any part of the cost not allocated to the utilities to come from public funds. The question is whether the Public Service Commission was authorized to direct that the entire cost of the relocation be paid from public funds, in particular whether, under its authority to “adopt any other method to appropriately apportion the costs,” the Commission could require that the full cost of relocating the overhead lines and facilities in the historic district of Annapolis be paid by the City of Annapolis. That is what the ⁵⁹⁷ Commission did; the Circuit Court for Anne Arundel County held that the Commission had no authority to do so.

We disagree with the Circuit Court but shall affirm for other reasons. Annapolis was not the first municipality to require the undergrounding of utility lines. A number of subdivisions, through zoning ordinances or regulations, have historically required service to new developments to be provided through underground lines. That, of course, does not involve the relocation of existing lines, but it does increase the cost of installing the new lines.

In that regard, as far back as 1966, the Commission had established a general policy, reflected in Order No. 56351 in Case No. 6016, that, whenever an electric utility is required to construct its lines underground at a cost substantially higher than the cost to construct the same lines overhead, absent unusual circumstances the annual fixed cost necessary to support the excess investment “shall be imposed on all of the utility’s customers receiving service in the geographic area and/or the local subdivision to which the regulation or ordinance is applicable as a whole.” (Emphasis in original). Frederick was apparently the first city to take advantage of the 1974 law and require the undergrounding of existing overhead utility lines in its historic district. In that case, the Commission directed that the city pay half the relocation cost and that the other half be advanced by the utilities, to be recovered by a one-time surcharge on their customers in the city. See Matter of the Application of the Potomac Edison Co., 66 P.S.C.Rep. 181, Order No. 61252 (1975).

The case now before us originated with a letter-petition from the Baltimore Gas and Electric Co. (BG & E) on April 22, 1985. The company informed the Commission that the City of Annapolis had “approached” it regarding the power lines in the historic district of the City, that the first phase of the work, near the Governor’s Mansion, would cost about $175,000, and that the total project would take five years or more to complete and would cost “several million dollars.” The company read the law as requiring the City to pay 50% ⁵⁹⁸ of the cost “with the remaining 50% to be handled either as a surcharge to customers within the Municipality, or as a rate base item.” It asked the Commission to approve “rate base treatment,” contending that that approach was “consistent with a long-standing Company policy” and that the cost of administering a surcharge program would be excessive. The BG & E “petition” was referred to the Commission’s technical staff for review. On June 4,1985, the staff filed a report dated May 10, 1985, in which it objected to rate base treatment and recommended instead, that the utility’s cost be recovered through surcharges on BG & E’s Annapolis customers.

The staff seemed to accept the notion that 50% of the cost would be paid by the City and dealt only with how the other half, to be advanced by the utility, would be recovered. They observed that the Commission had never established any policy in that regard, that the C & P Telephone Co., which also had overhead lines in the historic district, had recommended the surcharge approach, and that there was some question of whether the project would actually proceed beyond Phase I ($175,000). They contended further that the surcharge method was consistent with the approach taken in the Frederick case, that it would provide greater “visibility” of the project, and that the rate base method “would authorize a continuing return to the utility whereas the customer surcharge (contribution) would not.” The Commission did not hold a formal hearing on the matter. Apparently heeding the staff recommendation, it informed BG & E, by letter of June 11, 1985, that it would not authorize rate base treatment for the undergrounding of lines in Annapolis and directed the company to provide the Commission with the total costs of the conversion, along with “detailed information as to how the Company intends to implement the surcharge on customers in the Annapolis area.” BG & E responded with two letters — one dated July 10, 1985, giving the Commission the financial information it ⁵⁹⁹ sought, the second dated August 13, 1985, requesting that the Commission reconsider its decision not to allow rate base treatment.

In the July letter, BG & E estimated that the total Annapolis project would proceed in four phases, continuing through FY 1990. Phase I, involving only Church Circle and School Street, would cost $221,000, of which the “City’s share” would be $110,500. The balance of the cost, plus $18,000 estimated for administration of the surcharging, would be spread over BG & E’s 15,000 Annapolis accounts and would involve a total surcharge of $8.60/account, to be billed over a two-month period. Phases II-IY, the Company estimated, would cost about $26.4 million.

The Company’s August 13 letter is not altogether clear. At one point, it refers to 12,000 Annapolis accounts rather than the 15,000 stated in the July letter. It also states that the actual undergrounding costs of Phases II-IV would be only $3.2 million (rather than $26.4 million) and that “[t]o the extent that the City would insist on more comprehensive projects, we would not expect to participate because our program is limited to $1 million annually.” 2 The Commission responded on August 21. It asserted that, since the enactment of § 72A, “the Commission has maintained a policy whereby residents of any municipality which mandates the execution of an undergrounding project in a historic district shall pay 50% of the net capital costs associated with the project.

The Commission believes that this is an equitable policy which assures that the residents who will ⁶⁰⁰ benefit from special undergrounding projects in the historic district will pay the costs of those projects” and that “the Commission is not persuaded that cause has been shown to modify or deviate from its established policy.” The decision to require the Company’s share to be recovered by surcharge on its Annapolis customers was reaffirmed, although the Commission directed BG & E to spread the surcharge over four months rather than two. Contemporaneously with its response to BG & E, the Commission wrote to the Mayor of Annapolis informing him of the Commission’s decision and suggesting that the City either reconsider the need for Phases II-IV or seek county or State assistance in defraying the cost of those phases. On September 10, 1985, State Senator Winegrad, who represents Anne Arundel County, wrote to the Commission seeking further reconsideration. He pointed out that there had been no public notice that a decision was pending, that he and other interested persons wanted to present their views, that a State grant of $971,000 for the project had been approved by the Legislature in the 1985 General Construction Loan, and that the project might have to be abandoned if the utilities’ share of the cost was placed solely on Annapolis residents.

Upon receipt of Senator Winegrad’s letter, the Commission decided to conduct a “legislative-type” hearing and asked that interested parties “proffer facts and points of view abput (a) the costs of the Phase I and subsequent phases of the undergrounding project; (b) the State’s grant of $971,000 to the City of Annapolis to install utility lines on streets on which prominent State facilities are located, contingent upon the City of Annapolis providing an equal amount of matching funds; (c) the application of Section 8.14.1 of Article 66B and Section 72A of Article 78 to the cost of Phase I and subsequent phases; (d) considerations of equity concerning whether BG & E’s ratepayers in Annapolis, Anne Arundel County, or the company’s entire service territory or the taxpayers of Maryland should pay the cost of ⁶⁰¹ Phase I and subsequent phases; and, (e) other matters of fact or law which are relevant to the allocation of payment of the costs of Phase I and subsequent phases.” At the hearing, held on November 14, 1985, a number of questions arose as to the precise scope of Phase I, what the cost of relocating the overhead BG & E lines would be, and how much of that cost could be defrayed by the State grant and matching City funds. The Commission was formally apprised of the terms of the State grant, as specified in the 1985 General Construction Loan item, i.e., “Make a grant to the City of Annapolis to install utility lines underground in Historic District on streets (including State Circle, Cornhill Street, Francis Street, School Street, Main Street to City Dock, and Hyde Alley) on which prominent State facilities are located or nearby. This grant is contingent on the City of Annapolis providing an equal amount of matching funds.......$971,000.” See, 1985 Md.Laws, ch. 125. Senator Winegrad reviewed the history of attempts to secure funding for the project and asserted that the inclusion of this item in the General Construction Loan demonstrated an awareness by the State of the unique significance of Annapolis.

He and counsel for the City of Annapolis purported to stipulate that a decision was sought only as to Phase I and that whatever decision was made as to that would not be regarded as binding with respect to the other phases of the work — that each phase should be reviewed independently. They also made clear their desire that only the actual cost of undergrounding, including comparable repaving but not an upgrading of the repaving, be considered and that the cost be paid as follows: 50% by the utilities, to be included in the general rate base; 25% from the State grant, and 25% from matching City funds. The staff reiterated its position that rate base treatment was inappropriate. In response to the argument that the cost should be spread Statewide because of the unique national historical significance of Annapolis, they observed ⁶⁰² that, as BG & E does not provide service Statewide, inclusion of the cost in its rate base would not spread it Statewide.

Customers of the other electric utilities providing service on the Eastern Shore, Western Maryland, and the metropolitan Washington suburbs would have no share of it. The staff also stressed the recurrent recovery by BG & E if rate base treatment were ordered. Given the confusion over the scope and cost of the Phase I work, the Commission sought more precise information. Following the hearing, the Commission was informed, by letters from BG & E and counsel for Annapolis, that (1) the Phase I work involved the undergrounding .of lines on Church Circle and School Street, State Circle, Francis Street, Comhill Street, Main Street, and Hyde Alley, (2) the Church Circle/School Street part had already