Public Service Commission v. Howard Research & Development Corp.

Murphy, C. J., delivered the opinion of the Court. Howard Research and Development Corporation (HRD) owns and operates the Columbia Mall shopping center in Columbia, Maryland. Opened on August 2, 1971, the Columbia Mall is an enclosed facility consisting of two major department stores and approximately 100 smaller retail stores. During development of the Columbia Mall, and when the leases were executed between HRD and its tenants, there was on file with the Public Service Commission, as there is now, an electric service tariff of the Baltimore Gas & Electric Company (BG&E) the public service company supplying the area with electricity, setting forth the terms upon which a customer of BG&E would be allowed to purchase electricity and distribute it to its own tenants.

The tariff provides: Ҥ 3.1 General: The Company will undertake to furnish service to the Customer, who shall be one individual, firm, corporation or organization, for use only in or on the premises owned, leased to, occupied or managed by the Customer. The service furnished may not be remetered or sub-metered by the Customer for resale. Service furnished to the Customer may be, in turn, furnished by him to a tenant or occupant of such premises where charged for by him on one of the following bases: (a) As an unspecified amount, to be included as part of the rent. (b) As a specified amount which does not vary with the quantity of service used.

(c) As an unspecified amount varying with the quantity of service used by the tenant or occupant as shown by the Company’s indi ¹⁴³ vidual metering in the Customer’s name, but not exceeding the charge made to such Customer by the Company.” To avail itself of the provisions of the tariff, HRD installed transformers and other electrical equipment at a cost of approximately $350,000 to enable it to reduce high voltage current to a voltage suitable for use by its tenants, and to thereafter transmit the electric current to the separate premises of the tenants. HRD made arrangements with BG&E to purchase current at a wholesale rate, and negotiated leases with each of its tenants whereby, as authorized by § 3.1 (b) of the tariff, it agreed to furnish electricity to them and to make a separate flat monthly charge to each tenant therefor, not included as part of the rent, in an amount estimated to be that which the tenant would pay to purchase electricity directly from BG&E. HRD believed that this method of distributing electricity to its tenants was more suitable than including the electricity charges in the rent, as permitted by § 3.1 (a) of the tariff, because occupants of shopping centers conduct a variety of retail businesses differing greatly in their daily consumption of electricity. Therefore, HRD thought that the charge for electricity would be more acceptable to tenants if shown as a separate figure representing the estimated consumption of that particular tenant’s type of retail operation. According to HRD, in reliance upon the tariff, it negotiated long-term leases with the expectation that it would be receiving from its tenants, over the full term of the lease, a profit on the sale of the electricity which would supplement the separate amounts to be received as rent.

It claimed that the leases were negotiated with full awareness on both sides that HRD would receive from the tenant not only the rent, but also a substantial profit from the electric revenues; that the tenants in Columbia Mall are mainly large national or regional retail chains that have rented stores in hundreds of shopping centers in many different states; that these sophisticated retailers knew that if the landlord of a shopping center could make a profit on the electricity sold to them, and at the same time charge them no more than they ¹⁴⁴ would have to pay for the electricity from the local utility, they could allow for that profit as an appreciable credit in bargaining for what the landlord must receive as rent for the premises. By distributing electricity to its Columbia Mall tenants by the method authorized by § 3.1 (b) of the tariff, HRD realizes a profit on sales of electricity of approximately $100,000 per year. By order dated September 14, 1972, the Public Service Commission directed that an investigation be instituted “to review the arrangements under which . . . [HRD] charges its tenants for electric service. ...” A hearing was held on October 30, 1972 before the Commission’s Chief Hearing Examiner, at the conclusion of which the examiner made these findings: that HRD buys electricity at a wholesale rate and resells it to its commercial tenants at individually specified amounts that do not vary with consumption as permitted by § 3.1 (b) of the tariff; that the electric charge made by HRD to its tenants is separately stated from the rental charge; that while the tariff provision does not limit the charge that HRD could make to its tenants, the leases between HRD and its tenants provide that the charge shall not exceed what the tenant would pay if billed direct by BG&E; that in the installation of its electric system, HRD provided check metering outlets to the tenants’ premises to measure actual consumption and to provide a more accurate basis for determining the specified amount to be billed; and that the specified amount in present billings is on an adjusted basis developed by the check metering. The examiner concluded that while the method employed by HRD was in accordance with § 3.1 (b) of the tariff, it nevertheless violated The Public Service Commission Law (Maryland Code, 1969 Repl.

Vol., Article 78) and necessitated modification of the provisions of BG&E’s electric service tariff. The examiner noted that the terms “Electric company” and “Electric plant” were defined in sections 2 (f) and (g) of The Public Service Commission Law as follows: “(f) ‘Electric company’ means and includes any public service company, other than a company generating and/or transmitting. electricity ¹⁴⁵ exclusively for its own use (1) which (A) owns any electric plant and (B) transmits, sells, or distributes electricity, or generates electricity for distribution or sale; or (2) any such company which is authorized to erect, lay down or maintain wires, pipes, conduits, ducts or other fixtures in, over, or under streets for furnishing or distributing electricity, or to maintain underground conduits or ducts for electrical conductors; or (3) every municipal corporation in the business of supplying electricity for other than municipal purposes. (g) ‘Electric plant’ means plant owned by an electric company and includes but is not limited to batteries, boilers, buildings, cables, conduits, converters, dams, ducts (or other devices for containing or carrying electrical conductors), dynamos, easements, lamps, meters, motors, poles, power stations, real estate, services, transformers, waterfalls, water plant and water property.” From these definitions, the examiner concluded that an electric company was one which owned an electric plant and sold or distributed electricity; and that an electric plant includes transformers. By making a separate charge at a specified amount, the examiner found that HRD “sells electricity and since it owns transformers, it owns [an] electric plant.” The examiner found that the arrangement under which electric service was furnished by HRD to its tenants required “a public service company status under the Public Service Commission Law”; that, in effect, the tariff permitted ITRD to act as an electric company without regulation by the Commission. 1 The examiner recommended ¹⁴⁶ that § 3.1 (b) be modified to exclude from its operation any “customer” owning an “electric plant” and to require that the “specified amounts charged by the customer may not exceed what the tenants would pay separately or in the aggregate to the utility if billed direct.” The examiner concluded with these findings: “(1) that Section 3.1 (b) of the electric service tariff of Baltimore Gas and Electric Company can permit an arrangement that violates The Public Service Commission Law and, therefore, should be modified as hereinbefore stated; (2) that Howard Research and Development Corporation is not a public service company; (3) that the arrangement under which Howard Research and Development Corporation furnishes electricity to its tenants requires public service company status; (4) that Howard Research and Development Corporation must cease its present method of furnishing electricity as promptly as possible and utilize the provisions of Section 3.1 (a) of the said electric tariff, or Baltimore Gas and Electric Company must assume direct billing.” It was the view of the examiner that HRD would not violate the law if it utilized the provisions of § 3.1 (a) because electricity furnished to tenants under that sub-section “becomes a part of the total conveniences and necessities that a landlord decides to provide in order to attract tenants and to place them in a position where, generally, their total cost of occupancy is known.” He said that “[S]uch an arrangement does not contemplate a sale of electricity” under Art. 78, § 2f.

On January 10, 1973 the Commission adopted the examiner’s findings and ordered BG&E to modify § 3.1 (b) of its tariff “so that application of its provisions will not conflict with The Public Service Commission Law and that the ultimate consumer shall not pay more than if billed direct by it.” The Commission directed that BG&E furnish electric service direct to the tenants at Columbia Mall “if ¹⁴⁷ [HRD] does not take steps as promptly as possible to change from its present method of furnishing electricity to one that will not conflict with The Public Service Commission Law.” On February 1, 1973, HRD filed a petition of appeal and for declaratory judgment and injunctive relief in the Circuit Court of Baltimore City. It claimed that the Commission’s order was erroneous “in that . . . [HRD’s] sales of electricity to its tenants and only to its tenants are incidental to the landlord-tenant relationship and are therefore private, as distinguished from public, sales of electricity not subject to regulation by the . . . Commission and not constituting a violation of The Public Service Commission Law.” HRD sought a declaration that its method of charging for electrical services, in its leases with its tenants, was a lawful practice and not inconsistent with the BG&E tariff. And it sought an order enjoining the Commission from interfering with its contractual rights to charge its tenants for electrical services.

The court (Ross, J.) reversed the Commission’s order. It held that HRD’s distribution of electricity to its tenants and its method of charging them for that service did not violate The Public Service Commission Law and, that the Commission’s order requiring BG&E to modify § 3.1 (b) of its tariff, and to furnish electricity directly to the tenants in Columbia Mall, was based on an erroneous interpretation of the law. The court noted that although The Public Service Commission Law did not make a “specific or express distinction between public and private sales,” it had been construed since its inception in 1910 as regulating only services provided to the public. The court said: “Public sales are regulated and private sales are not.” It stated that either a “gloss” had been imposed on the statute, limiting its application to public service companies engaged in sales to the public, or that the exclusion from the definition of an “electric company” in § 2 (f) of a company transmitting electricity “exclusively for its own use” could be read to apply to the sale of electricity by a landlord to his tenants.

The court held that the tariff was not illegal because HRD’s sales were not made to the public; it based its decision on the ¹⁴⁸ administrative and judicial construction placed upon The Public Service Commission Law in Yeatman v. Public Service Commission, 126 Md. 513 , 95 A. 158 (1915), by the Commission’s General Counsel in an opinion rendered in 1913 in the case of In the Matter of Charles B. Clark v. Marlborough Apartment House Company, 4 PSC 568, and the long-standing existence of § 3.1 of the tariff which had been on file with the Commission since 1929. Appealing from the court’s order, the Commission reasserts its position that § 3.1 (b) of the tariff is in violation of The Public Service Commission Law in that HRD’s ownership of an electric plant and its sale of electricity to its tenants has the effect of HRD acting as an electric company and thus a non-regulated public service company. The Commission claims that because HRD is supplying electricity to over 100 of its tenants, its service is a public, and not a private one, a conclusion which it deems supported by our decision in Yeatman v. Public Service Commission, supra. But, it maintains, the “public v. private” use test is not the measure of the Commission’s regulatory jurisdiction under the present statute.

Claiming that The Public Service Commission Law “is distinctly silent on the public v. private theory,” the Commission argues that we must strictly construe the statute “so as to eliminate this distinction.” The Commission maintains that the legislative intent to regulate the “virtual monopoly” in services provided by public utilities, manifest in The Public Service Commission Law, is fulfilled by the regulation of HRD, which, it contends, has not only an “actual monopoly on the sale of electricity to its tenants, but [whose] sales and service incident thereto are unregulated by any public authority.” It argues that “HRD is not supplying electricity to its tenants as a mere incident to its business of landlord but by its own admission it is making a profit on the transaction.” HRD contends that its activities are not subject to the Commission’s regulation. It maintains that public sales