Wash. Gas Light Co. v. Md. Pub. Serv. Comm'n

Getty, J. Legislative intent (b) 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. -Statement of "Legislative Intent," Senate Bill 8, 2013 Md. Laws, ch. 161, § 1. In this appeal, we are asked to interpret Public Utility Article ("PU") § 4-210 of the Maryland Code, known also as the STRIDE statute. 1 In short, the STRIDE statute allows Maryland gas companies more timely cost recovery if they submit plans that increase the pace of natural gas infrastructure improvements. The General Assembly passed the STRIDE statute (Senate Bill 8) in response to increasing concerns about threats to public safety posed by aging and deteriorating gas infrastructure throughout the state. 2 The Fiscal and Policy Note for Senate Bill 8 highlighted the occurrence of "30 'significant [pipeline] incidents' in Maryland from 2002 through 2011, totaling $12 million in property damage and causing one fatality and 16 injuries." Dep't Leg. Servs., Fiscal and Policy Note, Senate Bill 8 , at 6 (2013 Session) (hereinafter cited as "Senate Bill 8 Fiscal Note").

To underscore the importance of providing Maryland residents with a safe and reliable gas distribution infrastructure throughout the State, the legislature codified a rarely used express statement of legislative intent. See PU § 4-210(b). Petitioner Washington Gas Light Company ("Washington Gas") asserts that the Maryland Public Service Commission ("the Commission"), the Circuit Court for Montgomery County, and the Court of Special Appeals each erred in their statutory analysis, from which they ultimately concluded that the STRIDE statute provides accelerated cost recovery only for gas infrastructure projects located in the State of Maryland. Respondents Maryland Office of People's Counsel ("OPC") 3 and the Commission argue that the prior tribunals' interpretation of PU § 4-210 was correct.

We are therefore called upon to conduct statutory interpretation, analyzing both the plain language and the legislative history of PU § 4-210. For the following reasons, we conclude that PU § 4-210 is unambiguous and requires that "gas infrastructure improvements" be located "in the State" in order to promptly recover investment costs separate from base rate proceedings. We also hold that the STRIDE statute's legislative history supports this interpretation. Accordingly, we affirm the judgment of the Court of Special Appeals.

BACKGROUND A. The Parties Washington Gas is a public service company that provides natural gas and delivery services to customers in the Maryland counties of Montgomery, Prince George's, Charles, Calvert, St. Mary's, and Frederick, as well as customers in Washington, D.C. and jurisdictions in Virginia. To transport natural gas to its customers, Washington Gas operates a system of distribution pipelines spanning its geographic service area throughout Maryland, Virginia, and Washington, D.C. The Commission is tasked with regulating Maryland public service companies, including Washington Gas, and its duties are summarized in Maryland Off. of People's Counsel v. Md. Pub. Serv. Comm'n : The Maryland Public Service Commission is an independent unit in the executive branch of State government (PU[ ] § 2-101(b) ), with jurisdiction over public service companies that operate utility businesses within the State.

PU[ ] § 2-112(a). The Commission's primary duties are to "supervise and regulate" the companies subject to its jurisdiction[,] to "ensure their operation in the interest of the public[,]" and to "promote adequate, economical, and efficient delivery of utility services in the State without unjust discrimination [.]" PU[ ] § 2-113(a)(1)(i). 226 Md.App. at 488, 130 A.3d 1061 . The statutory authority for the Commission's regulation of public service companies is provided in Title Four of the Public Utilities Article. Washington Gas has a duty to "charge just and reasonable rates for the regulated services that it renders," PU § 4-201, and the Commission retains "the power to set a just and reasonable rate of a public service company[.]" PU § 4-102(b).

Generally, the Commission determines just and reasonable rates for a public service company by accounting for the company'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." 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). The Commission may order an adjustment in the company's rates if the utility's level of income deviates significantly from the test year's net income. See id. Importantly, prior to the enactment of the STRIDE statute, a public service company would recover the costs of investment in infrastructure improvements through distribution rates, determined with the Commission, after the work was completed .

PU § 4-101(3) (defining "just and reasonable rate" as "a reasonable rate on the fair value of the public service company's property used and useful in providing service to the public ." (Emphasis added) ). B. The STRIDE statute - PU § 4-210 Beginning in 2011, the General Assembly considered legislation to accelerate replacement of aging gas infrastructure and allow cost recovery separate from base rate proceedings. See S.B. 8, 2013 Reg. Sess.

(cross-filed as H.B. 89); S.B. 541, 2012 Reg. Sess. (cross-filed as H.B. 662); S.B. 332, 2011 Reg. Sess.

(cross-filed as H.B. 856). On February 22, 2013, the General Assembly enacted a bill titled "An Act Concerning Gas Companies-Rate Regulation-Infrastructure Replacement Surcharge," the STRIDE statute, creating an exception to the normal ratemaking process. The law took effect on June 1, 2013. 2013 Md. Laws, ch. 161, § 2. The STRIDE statute created § 4-210 of the Public Utilities Article.

To increase the pace of natural gas infrastructure improvements, promote public safety, and enhance gas pipeline system reliability, the General Assembly created incentives for public service companies to submit STRIDE-compliant infrastructure plans, which would receive more timely cost recovery than would otherwise be available under the traditional rate setting process. Pursuant to the STRIDE statute, a public service company may file "a plan to invest in eligible infrastructure replacement projects" with the Commission accompanied by "a cost-recovery schedule ... that includes a fixed annual surcharge on customer bills to recover reasonable and prudent costs" of those projects. PU § 4-210(d)(1). An "eligible infrastructure replacement" project is defined as "a replacement or an improvement in an existing infrastructure of a gas company." PU § 4-210(a)(3).

Further, an "eligible infrastructure replacement" project: "(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." Id. A STRIDE plan filed by a public service 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." PU § 4-210(d)(2). Unlike most legislation, the STRIDE statute included a 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." PU § 4-210(b). If the Commission approves a proposed infrastructure project under the STRIDE statute, a public service company may recover costs through a fixed annual surcharge that is collectible while the approved work is being performed.

See PU § 4-210(d)(3). C. Legal Proceedings Washington Gas filed a STRIDE plan with the Commission on November 7, 2013, that was approved by the Commission. PU § 4-210(d). The proposed 2013 STRIDE plan consisted of four distribution system replacement programs, all of which were located within the company's Maryland service territory.

Subsequently on March 10, 2015, Washington Gas filed an application for approval of a proposed amendment to add four new transmission system programs. While the majority of the assets included in the amended application were physically located in Maryland, three proposals contained individual projects located outside of Maryland. Specifically, Transmission Program 1 contained two projects replacing pipeline in Virginia, Transmission Program 2 contained four infrastructure replacement projects in Virginia, and Transmission Program 4 contained six replacement projects in Virginia or Washington, D.C. The Commission was required to approve or deny the amended application within 150 days of the amendment's filing. PU § 4-210(e)(2).

The Commission deferred its decision and delegated the matter to a public utility law judge on March 16, 2015. PU § 3-104(d)(1). The Commission staff and the OPC intervened in the proceeding before the public utility law judge, then-Chief Judge Terry J. Romine. An evidentiary hearing was held on April 29, 2015, and initial and reply briefs were filed on May 14 and May 21, 2015, respectively.

The parties mainly disputed whether Washington Gas could recover costs for infrastructure replacement projects located outside of Maryland through the STRIDE statute. Washington Gas contended that since Maryland customers would benefit from the improvements located outside of Maryland, PU § 4-210 permitted STRIDE cost recovery on those out-of-state assets. On May 27, 2015, Chief Judge Romine issued an order, concluding that for "an infrastructure replacement project to be an 'eligible infrastructure replacement' under the STRIDE law," and thus qualifying for accelerated cost recovery associated with the project through the STRIDE surcharge mechanism, the project "must be located on pipeline system located in the State and subject to the Commission's jurisdiction." Further, Chief Judge Romine stated that the STRIDE statute "is clear and unambiguous; the incentive for cost recovery outside a base rate proceeding is available to 'accelerate gas infrastructure improvements in the State.' " Since Transmission Programs 1, 2, and 4 included infrastructure located outside of Maryland, Chief Judge Romine denied STRIDE cost recovery for the out-of-state portions of the amended STRIDE plan. Washington Gas appealed the order to the full Commission, arguing that the company should be entitled to accelerated recovery of costs for parts of the projects not located in the State of Maryland.

PU § 3-113(d)(2)(i). In a July 2, 2015 order, the full Commission affirmed Chief Judge Romine's legal analysis, determining that Washington Gas may not recover costs associated with out-of-state projects under the STRIDE statute and that recovery was limited to improvements physically located in Maryland. The full Commission found that "PU § 4-210(b) of the STRIDE Law clearly expresses the legislative intent behind the statute" and "[t]o interpret § 4-210(b) any other way would be contrary to accepted principles of statutory construction, and would render the words 'in the State' meaningless." The Commission concluded that that: [t]he Company may include the appropriate Maryland-allocated share of out-of-state projects in the rate base in its next rate case, as has been the Company's practice, but there is no basis to accelerate cost recovery for improvements that the General Assembly did not intend to make eligible under the STRIDE [statute]. Washington Gas then petitioned for judicial review of the Commission's decision to the Circuit Court for Montgomery County on July 30, 2015.

PU § 3-201(b). After holding a hearing, the Honorable Joseph M. Quirk entered an order and accompanying opinion on March 23, 2016 denying the petition for judicial review and affirming the final order of the Commission. Judge Quirk concluded that the legislative intent section of the STRIDE statute is unambiguous and dispositive of the issue. Additionally, Judge Quirk stated that the adoption of Washington Gas's argument would "cause [the] STRIDE[ ] [statute's] narrow exception to the normal ratemaking process to swallow the rule, effectively permitting concurrent recovery of costs incurred by gas companies if the public utility could show that the utility company actions had any bearing on Maryland's overall infrastructure safety." (Emphasis in original).

Washington Gas appealed to the Court of Special Appeals. The Court of Special Appeals examined both the plain text and legislative history of PU § 4-210. Washington Gas Light Co. v. Md. Pub. Serv.

Comm'n , 234 Md.App. 367 , 382-88, 172 A.3d 927 (2017). Ultimately, the Court of Special Appeals determined that the Commission's interpretation, and the circuit court's affirmance, of the STRIDE statute and its legislative intent was correct because the relevant language is unambiguous. Id. at 384 , 172 A.3d 927 . Similar to the circuit court's reasoning, the Court of Special Appeals held that adopting Washington Gas's argument would lead to "a very subtle and very forced construction" in order "to support a judicial conclusion that the Legislature's unambiguously expressed intention that the STRIDE law permits accelerated cost recovery only for infrastructure improvements in Maryland to mean that the General Assembly also intends the law to extend to improvements that are located outside of this state." Id.

While the Court of Special Appeals found the plain language of the STRIDE statute unambiguous, it also analyzed the legislative history of the STRIDE statute as a "check" on its plain language interpretation. Id. at 384-85, 172 A.3d 927 . Although the Court of Special Appeals recognized that nothing in the legislative history led "ineluctably to the conclusion that the General Assembly intended that the STRIDE law should apply only to projects located in Maryland[,]" it also noted that the legislative history did not "suggest that the legislators, stakeholders, or anyone else who was a part of the discourse surrounding the STRIDE law considered it to be a mechanism for accelerated cost recovery for improvements made outside of the state." Id. at 387, 172 A.3d 927 . For these reasons, the Court of Special Appeals agreed with the Commission's interpretation and affirmed the circuit court's judgment.

Id. at 388, 172 A.3d 927 . Washington Gas then petitioned this Court for a writ of certiorari , which we granted on February 5, 2018. Washington Gas Light Co. v. Md. Pub. Serv.

Comm'n , 457 Md. 400 , 178 A.3d 1243 (2018). Focusing on statutory interpretation of PU § 4-210, we now consider whether the STRIDE statute provides for accelerated recovery of costs for portions of projects outside of Maryland. STANDARD OF REVIEW Consistent with our review of decisions by other administrative agencies, we review the Commission's decision rather than the decisions of the circuit court or the Court of Special Appeals. Md. Off. of People's Counsel , 226 Md.App. at 500 , 130 A.3d 1061 .

The Public Utilities Article of the Maryland Code specifically includes the standard of review applicable to a decision by the Commission: 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. PU § 3-203. However, this Court has expanded on the scope of review mandated by the Public Utilities Article by noting that a decision of the Commission: will not be disturbed on the 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 with the standard of review applicable to administrative agencies generally. Town of Easton v. Pub. Serv. Comm'n of Maryland , 379 Md. 21 , 30, 838 A.2d 1225 (2003) (quoting Cambridge v. Eastern Shore Pub.

Serv. Co. , 192 Md. 333 , 339, 64 A.2d 151 (1949) ) (internal citations omitted). "Even when reviewing questions of law, 'the agency's interpretation of a statute may be entitled to some deference.' However, 'that deference is, by no means, dispositive, nor anywise as great as that applicable to factual findings or mixed questions of law and fact.' " Commc'ns Workers of Am. v. Pub. Serv.

Comm'n of Maryland , 424 Md. 418 , 434, 36 A.3d 449 (2012) (quoting People's Counsel v. Pub. Serv. Comm'n , 355 Md. 1 , 14, 733 A.2d 996 (1999) ). Appellate courts consider several factors when evaluating an agency's interpretation of a statute.

These factors include: 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. 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-considered opinion of an expert body. Baltimore Gas & Elec.

Co. v. Pub. Serv. Comm'n of Maryland , 305 Md. 145 , 161-62, 501 A.2d 1307 (1986). As statutory interpretation is a question of law, we may review the Commission's decision de novo .

In doing so, this Court will conduct an independent legislative intent analysis. DISCUSSION A. Parties' Contentions Washington Gas argues that the Commission, the circuit court, and the Court of Special Appeals incorrectly interpreted the STRIDE statute for three principal reasons. First, Washington Gas asserts that the Commission's interpretation of the STRIDE statute violated rules of statutory construction because the Commission did not apply the statutorily defined and unambiguous term "eligible infrastructure replacement." Washington Gas asserts that there is no dispute among the parties and the tribunals that Washington Gas met the STRIDE statute's five criteria found in PU § 4-210(a)(3) and, as such, the projects should be approved as "eligible infrastructure replacement." Second, Washington Gas argues that the Commission's reliance on the legislative intent provision, PU § 4-210(b), and its "in the State" language was misapplied because PU § 4-210(b) is a preamble. According to Washington Gas, the "sole purpose of the legislative intent provision is to guide the Court's interpretation of ambiguous terms in the controlling sections of the law." Washington Gas asserts that since the statute's five eligibility criteria are unambiguous, it was improper to combine the ambiguous legislative intent provision with the "controlling section of the law." See Kent v. Somervell , 7 G. & J. 265 , 274 (1835).

Lastly, Washington Gas argues that "even if principles of statutory construction allow a legislative intent provision to be used as a substantive part of the statute, the Commission should have applied the interpretation of the legislative intent provision that is most consistent with the other, unambiguous provisions of [the] STRIDE [statute]." Washington Gas asserts that the legislative intent provision should reflect the General Assembly's desire to "accelerate projects that would result in safety and reliability improvements for Maryland gas customers" instead of imposing a geographic limitation. Regarding legislative intent, Washington Gas concedes that STRIDE projects located outside of Maryland were not discussed or debated during the STRIDE statute's legislative hearing and floor proceedings. Further, Washington Gas notes that it assisted in the drafting of the statute and that if out-of-state projects had been broached during debate, the company's representatives would have addressed the importance of not limiting STRIDE projects based upon geographic location since Maryland customers benefit from these out-of-state projects. In summary, Washington Gas asserts that there is nothing in the legislative history