Apartment & Office Bldg. Ass'n of Metro. Wash. v. Pub. Serv. Comm'n of the D.C.

• Decision Date: 14 January 2016
• Docket Number: Nos. 15–AA–301,15–AA–302.,s. 15–AA–301
• Citation: 129 A.3d 925
• Parties: APARTMENT AND OFFICE BUILDING ASSOCIATION OF METROPOLITAN WASHINGTON, Petitioner, v. PUBLIC SERVICE COMMISSION OF the DISTRICT OF COLUMBIA, Respondent, and Office of the People's Counsel, District of Columbia Department of Transportation and Potomac Electric Power Company, Intervenors.
• Court: D.C. Court of Appeals

129 A.3d 925

APARTMENT AND OFFICE BUILDING ASSOCIATION OF METROPOLITAN WASHINGTON, Petitioner,

v.PUBLIC SERVICE COMMISSION OF the DISTRICT OF COLUMBIA, Respondent,andOffice of the People's Counsel, District of Columbia Department of Transportation and Potomac Electric Power Company, Intervenors.

Nos. 15–AA–301

15–AA–302.

District of Columbia Court of Appeals.

Argued Nov. 3, 2015.

Decided Jan. 14, 2016.

Vincent Mark J. Policy, Washington, DC, with whom Frann G. Francis was on the brief, for petitioner.

Christopher G. Lipscombe, Attorney Advisor, with whom Richard A. Beverly, General Council, and Naza N. Shelley, Attorney Advisor, were on the brief, for respondent.

John Michael Adragna, Kevin J. Conoscenti, Sandra Mattavous–Frye, Karen R. Sistrunk, Washington, DC, and Travis R. Smith, Indianapolis, IN, were on the brief for intervenor Office of the People's Counsel.

Karl A. Racine, Attorney General for the District of Columbia, Todd S. Kim, Solicitor General, Loren L. AliKhan, Deputy Solicitor General, and James C. McKay, Jr., Senior Assistant Attorney General, were on the brief for intervenor District of Columbia Department of Transportation.

Peter E. Meier, with whom Wendy E. Stark, Andrea H. Harper, and Dennis P. Jamouneau, Washington, DC, were on the brief, for intervenor Potomac Electric Power Company.

Before EASTERLY and McLEESE, Associate Judges, and FARRELL, Senior Judge.

McLEESE, Associate Judge:

In 2014, the Council of the District of Columbia authorized intervenors Potomac Electric Power Company (Pepco) and District of Columbia Department of Transportation (DDOT) to work together to move overhead electrical-power lines underground. Electric Company Infrastructure Improvement Financing Act of 2014 (ECIIFA), D.C.Code § 34–1311.01 et seq. (2015 Supp.), amended by D.C.Code Ann. § 34–1311.01(8A) (West, Westlaw through Nov. 30, 2015). The project is expected to take seven to ten years to complete and to cost approximately $1 billion. Petitioner Apartment and Office Building Association of Metropolitan Washington (AOBA) seeks review of orders of respondent Public Service Commission of the District of Columbia allocating the costs of the project among Pepco's customers. We affirm.

I.

ECIIFA allows Pepco and DDOT to recover the costs of the undergrounding project in two ways. First, Pepco can impose "DDOT Underground Electric Company Infrastructure Improvement Charges" (DDOT charges) on certain Pepco customers. D.C.Code § 34–1313.01(a)(4). The revenue from DDOT charges is to be used to pay the principal and interest on bonds issued by the District of Columbia to finance aspects of the project. D.C.Code §§ 34–1311.01(13), 34–1312.01 to –1312.12. Second, Pepco can impose "Underground Project Charges" (UPCs) on certain of its customers in order to recover costs that Pepco itself incurs on the project. D.C.Code §§ 34–1311.01(21) and (42), 34–1313.10(c)(1). Both types of undergrounding charge must be approved by the Commission as part of triennial plans submitted by Pepco and DDOT. D.C.Code §§ 34–1313.01 to –1313.15.

The undergrounding charges are allocated among Pepco's customers using a single formula. See D.C.Code §§ 34–1313.01(a)(4), 34–1313.10(c)(1). Specifically, the charges are to be recovered in the form of a "volumetric surcharge," i.e., a surcharge tied to the amount of electricity each customer uses. D.C.Code §§ 34–1313.01(a)(4), 34–1313.10(c)(2). The charges are to be allocated among certain of Pepco's customer classes "in accordance with the distribution service customer class cost allocations approved by the Commission for the electric company ... [in or pursuant to the] most recent base rate case." D.C.Code §§ 34–1313.01(a)(4), 34–1313.10(c)(1).

"Base rate cases" are proceedings in which the Commission decides whether and how to modify electricity-rate designs to serve various regulatory goals. See Formal Case No. 1116, Application for Approval of Triennial Underground Infrastructure Improvement Projects Plan, Order No. 17697 ¶ 189 (Pub. Serv. Comm'n Nov. 12, 2014) (hereinafter "Order No. 17697 "). In a base rate case, the Commission can distribute the burden of meeting Pepco's revenue requirements among Pepco's customer classes, taking into consideration factors such as the amounts of electricity used by various customer classes, the number of customers in the classes, and the existing rates of return for the classes. See Formal Case No. 1103, Application of Potomac Elec. Power Co. for Authority to Increase Existing Retail Rates & Charges for Elec. Distrib. Serv., Order No. 17424 ¶¶ 385–86 (Pub. Serv. Comm'n Mar. 26, 2014) (hereinafter "Order No. 17424 "); Formal Case No. 1116, Application for Approval of Triennial Underground Infrastructure Improvement Projects Plan, Order No. 17769 ¶ 56 (Pub. Serv. Comm'n Jan. 22, 2015) (hereinafter "Order No. 17769 ").

The parties agree that Formal Case 1103 is the "most recent base rate case" for purposes of determining how to apportion the undergrounding charges. The Commission concluded Formal Case 1103 on March 26, 2014, after the enactment of ECIIFA but before ECIIFA's effective date of May 3, 2014. See Order No. 17424 at 1; Electric Company Infrastructure Improvement Financing Act of 2014, D.C. Act 20–290, § 503, 61 D.C.Reg. 1882 (Mar. 3, 2014) ; D.C. Law 20–102, 61 D.C.Reg. 5193 (May 3, 2014).

In Formal Case 1103, the Commission considered a variety of ratemaking adjustments requested by Pepco, along with a request to increase the revenue collected from Pepco's customers. See Order No. 17424 ¶ 566. Pepco initially requested a total revenue increase of $44,816,000, to recoup investments in infrastructure that Pepco described as needed to "improve the resiliency of its system in order to provide reliable service to its customers." Id. ¶ 8. The Commission approved a revenue increase of $23,448,000. Id. ¶¶ 13, 566. The Commission also addressed how the burden of paying for the revenue increase should be allocated among Pepco's customer classes. Id. ¶¶ 410–38. The Commission concluded that there "were significant disparities in customer class [rates of return] that warrant corrective action," id. ¶ 410, and that Pepco's commercial customer classes had been substantially subsidizing the costs of services for residential customers. Id. ¶ 438. In an effort to address this issue, the Commission decided that forty-seven percent of the total revenue increase would be allocated to residential customer classes. Id. ¶ 437.

The Commission decided to direct Pepco to collect the additional revenues allocated to residential customer classes through increases to customer charges, rather than through increases to volumetric charges. Order No. 17424 ¶ 450. For example, the monthly customer charge for Pepco's "Residential R" class was increased by $3.75, resulting in a total per-month charge of $13. Id. ¶ 451. The Commission found that the new customer charges approved for residential customer classes in Formal Case 1103 remained "well below the actual fixed costs of serving each of these [ ] customer classes." Id. ¶ 451. The volumetric charges for those classes of residential customers remained unchanged. Cf. id. ¶¶ 450–51.

In June 2014, Pepco and DDOT sought approval of their first three-year plan for the undergrounding project. See Order No. 17697 ¶ 5; Formal Case No. 1121, Application of Potomac Electric Power Co. for a Financing Order, Order No. 17714 ¶ 6 (Pub. Serv. Comm'n Nov. 24, 2014) (hereinafter "Order No. 17714 "). Among other things, the application requested approval of a UPC. Order No. 17697 ¶ 5. Pepco and DDOT proposed to allocate the UPC based on the "volumetric allocation of rates determined in Formal Case No. 1103, [ ] exclud[ing] the customer charge component." Order No. 17697 ¶ 97 (emphasis omitted). This proposal did not include the customer charge revenue approved in Formal Case 1103 because, according to Pepco, customer charges are typically used to recover costs such as billing and metering, not the types of costs associated with the undergrounding project. Id. ¶ 186. Pepco and DDOT's proposal allocated approximately eighty-nine percent of the burden of the UPC to commercial customer classes and approximately eleven percent of the burden of the UPC to residential customer classes. Id. ¶ 183.

AOBA opposed Pepco's proposed allocation, raising two alternative arguments. First, AOBA argued that the burden of the UPC should be allocated based on a study of the costs of providing service to various classes of customers that Pepco had prepared in connection with Formal Case 1103. Order No. 17697 ¶¶ 47–48. Second, AOBA argued that the customer charge approved in Formal Case 1103 had to be included in Pepco's proposed allocation, because that charge was one of the "distribution service customer class cost allocations" approved in Formal Case 1103. Id. ¶ 185. Under AOBA's reading of the statute, commercial customers would have borne a smaller percentage of the burden of the UPC than under Pepco's proposal. Cf. id. ¶¶ 47–51.

In Formal Case 1116, the Commission adopted Pepco's proposed approach, agreeing that customer charges should not be included in the UPC cost allocation. Order No. 17697 ¶ 187. An essentially identical issue arose in Formal Case 1121 with respect to the allocation of the burden of the DDOT charge. Order No. 17714 ¶¶ 39, 42, 77. The Commission resolved that issue as it had in Formal Case 1116. Id. ¶¶ 77–78.

In this court, AOBA challenges the Commission's cost-allocation decisions, arguing that the Commission misconstrued ECIIFA. After AOBA submitted its initial brief in this court, the Council of the District of Columbia amended ECIIFA by providing a definition of the disputed language in this case. See D.C.Code Ann. § 34–1311.01(8A). The amendment defines the term "[d]istribution service customer class cost allocations" as "the allocation of the electric company's revenue requirement to each customer rate class on the basis of the total rate class distribution...