Baltimore Gas and Elec. Co. v. Heintz

• Decision Date: 02 May 1985
• Docket Number: 84-1402,Nos. 84-1308,s. 84-1308
• Citation: 760 F.2d 1408
• Parties: , Fed. Sec. L. Rep. P 92,025 BALTIMORE GAS AND ELECTRIC COMPANY and BGE Corp., Appellees, v. Frank O. HEINTZ; William A. Badger; Lilo K. Schifter; Wayne B. Hamilton; and Haskell N. Arnold constituting The Public Service Commission of Maryland, Appellants, and Maryland Office of People's Counsel, Defendant. BALTIMORE GAS AND ELECTRIC COMPANY and BGE Corp., Appellees, v. Frank O. HEINTZ; William A. Badger; Lilo K. Schifter; Wayne B. Hamilton; and Haskell N. Arnold constituting The Public Service Commission of Maryland, Defendants, and Maryland Office of People's Counsel, Appellant.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 1408

760 F.2d 1408

53 USLW 2566, Fed. Sec. L. Rep. P 92,025

BALTIMORE GAS AND ELECTRIC COMPANY and BGE Corp., Appellees, v. Frank O. HEINTZ; William A. Badger; Lilo K. Schifter;

Wayne B. Hamilton; and Haskell N. Arnold

constituting The Public Service

Commission of Maryland, Appellants,

and

Maryland Office of People's Counsel, Defendant.

BALTIMORE GAS AND ELECTRIC COMPANY and BGE Corp., Appellees, v. Frank O. HEINTZ; William A. Badger; Lilo K. Schifter;

Wayne B. Hamilton; and Haskell N. Arnold

constituting The Public Service

Commission of Maryland, Defendants,

and

Maryland Office of People's Counsel, Appellant.

Nos. 84-1308, 84-1402.

United States Court of Appeals Fourth Circuit.

Argued Dec. 7, 1984.

Decided May 2, 1985.

Kirk J. Emge, Public Service Com'n of Md., George W. Liebmann, Baltimore, Md. (Eugene Gressman, Univ. of N.C. School of Law, Chapel Hill, N.C., John K. Keane, Jr., Gregory V. Carmean, Baltimore, Md., Md. Office of People's Counsel, on brief), for appellants.

Roger D. Redden, Baltimore, Md. (Francis X. Wright, Paul A. Tiburzi, David A. Brune, Gen. Counsel, Douglas S. Perry, Associate Gen. Counsel, Baltimore, Md., on brief), for appellees.

Before RUSSELL and HALL, Circuit Judges, and DUPREE, United States District Judge for the Eastern District of North Carolina, sitting by designation.

DONALD RUSSELL, Circuit Judge.

This appeal arises out of Baltimore Gas & Electric Co.'s (BG & E) suit against Frank O. Heintz, William A. Badger, Lilo K. Schifter, Wayne B. Hamilton, and Haskell N. Arnold, the commissioners of the Maryland Public Service Commission (PSC), ¹ seeking both a declaratory judgment that Md.Ann.Code art. 78 Sec. 24(e) (1980) is unconstitutional and an injunction prohibiting the future enforcement of that section. BG & E is a public utility organized under Maryland law with its principal place of business in Baltimore City, Maryland. It primarily supplies gas and electricity to customers in Baltimore City, Maryland. Its common stock is publicly traded on the New York Stock Exchange, and at the time of suit, 70% of its outstanding shares were owned by stockholders outside the state of Maryland.

BG & E was joined in its suit by BGE CORP, a Maryland corporation formed specifically to become the parent company of BG & E. BG & E proposed a share for share exchange of all the outstanding BG & E stock for stock in BGE CORP. The stock of Resource & Property Management (RPM), a wholly-owned subsidiary of BG & E, would also have been transferred to BGE CORP. As a result, BG & E and RPM would have become separate, wholly owned subsidiaries of BGE CORP; the holders of BG & E common stock would have become the holders of BGE CORP common stock. BG & E's preference stock, First Mortgage Bonds, and other outstanding debt would have continued as obligations of BG & E. This share for share exchange of the stock of BG & E for the stock of BGE CORP was designed "to separate the utility and non-utility divisions of the company under the holding company structure, which would 'facilitate the regulation of utility operations' and allow the company's non-utility divisions to diversify into activities other than the distribution of gas and electricity, without being held accountable to the PSC." Baltimore Gas & Elec. Co. v. Heintz, 582 F.Supp. 675, 677 (D.Md.1984).

BG & E and BGE CORP filed a joint application with the PSC requesting authorization for the latter company to acquire all the stock of the former. Pursuant to the Public Service Commission Law, Md.Ann.Code art. 78 Sec. 20(a), the Commission appointed a panel to hold hearings on the proposed stock exchange. The People's Counsel, an attorney appointed by the Governor to represent residential consumers in Commission proceedings, ² filed a motion to dismiss the Commission proceedings on the ground that art. 78 Sec. 24(e) prohibited the proposed exchange. After various memoranda were filed and a hearing was held, the Commission held that the proposed transfer was prohibited by the statute. The PCS did not consider the merits of the proposed exchange because it interpreted section 24(e) to bar absolutely the exchange.

Despite the availability of state court review proceedings, see Md.Ann.Code Secs. 89-98 (1980 & Supp.1984), BG & E and BGE CORP challenged the constitutionality of section 24(e) in federal court. After BG & E filed a motion for summary judgment in its suit seeking declaratory and injunctive relief concerning the constitutionality of section 24(e) on the basis of the supremacy, commerce, due process, and equal protection clauses, the district court granted the People's Counsel motion to intervene as a defendant. People's Counsel and the PSC filed motions for summary judgment, and the Securities and Exchange Commission filed a memorandum as an amicus curiae. Various replies and responses were filed; and after a hearing on the cross motions, the district court held that section 24(e) unconstitutionally burdened interstate commerce in violation of the commerce clause. 582 F.Supp. at 681-82. Specifically, the district court ruled that "the ban resulting from the absolute prohibition of Section 24(e) is excessive in light of the less restrictive alternative--a law which would allow the formation of public utility holding companies, but only on the approval of the PSC." Id. at 682. Relying on the amicus curiae brief of the Securities and Exchange Commission as "persuasive," the district court held that section 24(e) was not pre-empted by the Public Utility Holding Company Act of 1935, (PUHCA) 15 U.S.C. Sec. 79i(a)(2), which allows holding companies to be established and to acquire the stock of utilities with the approval of the SEC. The court determined that because section 24(e) was designed to protect rate payers, not investors, it did not conflict with the PUHCA, which was designed to control generally the activities of holding companies by subjecting them to extensive SEC regulations. Id. at 679-80. Finally, the district court declined to address BG & E's equal protection and due process claims.

From the judgment of the district court, the PSC and People's Counsel appeal, arguing that the district court incorrectly characterized the state's interest served by section 24(e) and that the court incorrectly balanced the state interest against the burden on interstate commerce. BG & E continues to rely on the commerce, equal protection, and due process clauses to argue that the statute is unconstitutional. In addition, it argues that section 24(e) violates the supremacy clause as it prohibits the execution of the full purposes and objectives of the PUHCA. Finding BG & E's contentions unpersuasive, we reject its attack on the constitutionality of section 24(e). Accordingly, we reverse the district court.

I

Our first task when addressing the constitutionality of any statute is to determine the appropriate construction of the statutory language. Neither the federal courts nor the Maryland courts have construed this statute previously. When construing a statute for the first time, courts look first to the statute's language, then to its legislative history, and finally to the interpretation given the statute by those charged with administering it. Brothers v. First Leasing, 724 F.2d 789, 792 (9th Cir.1984). Section 24(e) provides:

(e) Holding, acquiring, etc., capital stock of public service company.--No public service company shall take, hold, or acquire any part of the capital stock of any public service company of the same class, organized or existing under or by virtue of the laws of this State, without prior authorization by the Commission. No stock corporation of any description (except, with the authorization of the Commission, a company of the same class) shall take, hold or acquire more than ten per cent of the total capital stock of any public service company organized or existing under or by virtue of the laws of this State, unless such stock is to be taken as collateral security and the Commission approves of its being so taken; and no such public service company shall be party to the violation of this subsection. For the purposes of this subsection, a company controlling a public service company shall be deemed a public service company of the same class as the controlled public service company.

There is no Maryland legislative history interpreting section 24(e). The predecessor to the current statute was enacted in 1910, 1910 Md.Laws ch. 180 Sec. 35. That enactment was codified at Md.Pub.Div.Laws art. 23 Sec. 449 (1911) and provided that

... No such corporation shall directly or indirectly acquire the stock or bonds of any other corporation incorporated for or engaged in, the same or similar business, or proposing to operate or operating under a franchise from the same or any other municipality, unless authorized to do so, by the Commission. Save where stock shall be transferred or held for the purpose of collateral security only with the consent of the Commission, no stock corporation of any description, domestic or foreign, other than a gas or electrical corporation, shall purchase or acquire, take or hold, more than ten per centum of the total capital stock issued by any gas corporation or electrical corporation organized or existing under and by virtue of the laws of this state. Nothing herein contained shall be construed to prevent the holding of stock heretofore lawfully acquired.

This statute was recodified several times and combined with similar statutes governing common carriers. In 1955, the Public Service Commission Law of Maryland was revised by 1955 Md.Laws ch. 441; section 23 of chapter 441 contained the same language as the current version, but no legislative history exists for any of these versions or the version under consideration.

In the absence of legislative history construing the statute, the interpretation of the administrative agency charged with enforcing the statute, the meaning of which...