Md. Office of People's Counsel v. Md. Pub. Serv. Comm'n

• Decision Date: 01 June 2020
• Docket Number: No. 0789, Sept. Term, 2019,0789, Sept. Term, 2019
• Citation: 246 Md.App. 388,228 A.3d 1193
• Parties: MARYLAND OFFICE OF PEOPLE'S COUNSEL v. MARYLAND PUBLIC SERVICE COMMISSION, et al.
• Court: Court of Special Appeals of Maryland

246 Md.App. 388

228 A.3d 1193

MARYLAND OFFICE OF PEOPLE'S COUNSEL

v.MARYLAND PUBLIC SERVICE COMMISSION, et al.

No. 0789, Sept. Term, 2019

Court of Special Appeals of Maryland.

June 1, 2020

Argued by: Joseph Gordon Cleaver (William F. Fields, Deputy People's Counsel, Paula M. Carmody, People's Counsel, on the brief), Baltimore MD, for Appellant

Argued by: Deirdre Cheek Lynch (Public Service Commission of Maryland, Baltimore, MD) Carville B. Collins (DLA Piper, LLP, Baltimore, MD and Theodore J. Gallagher, Meagan B. Moore, NiSource Corporate Services Co, Canonsburg, PA), on the briefs, for Appellee

Panel: Reed, Wells, Zarnoch, Robert A., (Senior Judge, Specially Assigned), JJ.

Wells, J. Appellee, Columbia Gas of Maryland, Inc. ("Columbia Gas") sought approval from the Maryland Public Service Commission ("the Commission") to increase utility rates for several reasons among which was to help pay for environmental remediation of its site in Hagerstown. After negotiations, the parties agreed to the rate increase, but could not agree on the addition of the remediation costs. As a result, the parties conducted a hearing before the Chief Public Utility Law Judge ("PULJ"), who ruled that Columbia Gas could include the remediation costs in the rate increase. Appellant, the Maryland Office of People's Counsel ("OPC"), appealed that decision to the Commission, which agreed with the PULJ. OPC then petitioned for judicial review in the Circuit Court for Baltimore City. After a hearing, the circuit court affirmed the Commission. OPC now appeals the circuit court's ruling and raises two issues for our review:

I. Did the Commission err as a matter of law in failing to apply Public Utilities Article § 4-211 ’s limitation on a gas utility's ability to recover environmental remediation expenses from its customers?

II. In failing to offer any explanation for its implicit rejection of OPC's argument regarding the Statute's limitation on a gas utility's ability to recover environmental remediation expenses, did the Commission err as a matter of law in violating § 3-113 of the Public Utilities Article, or act arbitrarily or capriciously?

For the reasons that follow, we affirm.

FACTS AND PROCEDURAL HISTORY

On April 13, 2018, Columbia Gas of Maryland ("Columbia Gas") filed an application with the Public Service Commission of Maryland ("the Commission") under Maryland Code, (1998, Repl. Vol. 2019), Public Utilities Article ("PUA") §§ 4-203 and 4-204 to increase its base rates to its customers by $5,999,212.00. The request arose for multiple reasons, including Columbia Gas' desire to remediate industrial waste from its real property.

A. The Contaminated Site

The information contained in this section is taken from the findings of the Chief Public Utility Law Judge's ("PULJ") report dated October 2, 2018. These facts are largely undisputed.

From 1887 to 1952, the Hagerstown Heat & Light Plant, later known as the Hagerstown Gas Company, ("Hagerstown Gas") manufactured gas on what was then its approximately seven-acre site located in Hagerstown. The carbureted water-gas process Hagerstown Gas used produced a residue of coal and coke that was discharged into a pond on the company's property. This "tar pond" would become the focus of litigation, including this appeal.

In 1952, Hagerstown Gas sold approximately 2.5 acres of its property, which included the tar pond, to the Bester-Long Company, a road construction business. In 1975, Bester-Long sold the 2.5-acre tract to Richard F. Kline, Inc., another construction company. Twelve years later, in 1987, Kline conveyed 3.85 acres, encompassing the 2.5-acre tar pond site, to Cassidy Trucking, Inc. Cassidy Trucking later expanded its real property holdings to become a 5.82-acre parcel known as "the Cassidy Property."

B. Commission Case No. 9316: Columbia Gas I

In 1986, the Maryland Department of Health and Mental Hygiene ("DHMH")¹ investigated possible environmental contamination at the former Hagerstown Gas site. By 2002, the Maryland Department of the Environment ("MDE"), found that there were likely potentially hazardous by-products from the manufactured gas process on the property. In the words of one MDE report, the area near the former tar pond displayed "elevated levels of constituents common to urban development that may also be associated with MPG (Manufactured Gas Plant) residuals."²

Prompted by these investigations and the possible use of the federal Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"),³ 42 U.S.C. §§ 9601 - 9675, Columbia Gas' parent company, NiSource, Inc., sought to remediate any waste by-products from its Hagerstown site by participating in Maryland's Voluntary Clean-up Program ("VCP").⁴ One obstacle to NiSource participating in the VCP was that it did not own the tar pond site, which was then located on the adjacent Cassidy Property. As NiSource's representative explained at the hearing before the PULJ, NiSource decided to try to purchase the Cassidy Property to "reduce remediation costs, avoid litigation (with Cassidy Trucking and others) and minimize transaction costs associated with its assessment and remediation of the property."

In January 2013, NiSource successfully purchased the Cassidy Property. That same year, Columbia Gas sought approval from the Commission, in Case No. 9316, for a rate increase to offset the remediation costs, among other reasons. Following an evidentiary hearing, the PULJ found that the site of the Cassidy Property was not "used and useful" in providing utility service to its customers under the then-operative statute, PUA § 4-101, and did not approve a rate increase. In other words, the Commission found that because only 2.5 of the Cassidy Property's 5.85 acres had previously been used by Hagerstown Gas for the manufacture of gas, Columbia Gas could not pass on the cost to remediate the Cassidy Property to its customers. Columbia Gas sought judicial review in the Circuit Court for Washington County, which affirmed the Commission. Columbia Gas then filed an appeal to this Court.

We affirmed the circuit court. Columbia Gas v. Public Service Commission , 224 Md. App. 575, 121 A.3d 224 (2015). In reaching our decision, we observed that the Commission's ratemaking policy under PUA § 4-101 required a "just and reasonable rate" that

(1) does not violate any provision of this article;

(2) fully considers and is consistent with the public good; and

(3) except for rates of a common carrier, will result in an operating income to the public service company that yields, after reasonable deduction for depreciation and other necessary and proper expenses and reserves, a reasonable return on the fair value of the public service company's property used and useful in providing service to the public.

Id. at 582, 121 A.3d 224 (emphasis added). After analyzing the record, we concluded that Columbia Gas "failed to demonstrate a nexus between the Cassidy Property and the services its customers received from it to be considered used and useful for ratemaking purposes." Id . at 586, 121 A.3d 224. We, therefore denied Columbia' request for a rate increase. The Court of Appeals denied Columbia Gas' petition for a writ of certiorari. Id . 445 Md. 488, 128 A.3d 52 (2015).

C. A Change in the Law: Public Utilities Article § 4-211

In response to Columbia Gas , during the 2016 session of the General Assembly a bill was introduced to strike the "used and useful" language from PUA § 4-101. That effort failed. However, during the 2017 legislative session, S.B. 355/H.B. 414 passed and became law that same year. Subsequently codified as PUA § 4-211, the statute, in pertinent part, states:

(a)(1) Except as provided in paragraph (3) of this subsection, when determining necessary and proper expenses while setting a just and reasonable rate for a gas company, the Commission may include all costs reasonably incurred by the gas company for performing environmental remediation of real property in response to a State or federal law, regulation, or order if:

(i) the remediation relates to the contamination of the real property; and

(ii) the real property is or was used to provide manufactured or natural gas service directly or indirectly to the gas company's customers or the gas company's predecessors.

(2) Environmental remediation costs incurred by a gas company may be included in the gas company's necessary and proper expenses regardless of whether:

(i) the real property is currently used and useful in providing gas service; or

(ii) the gas company owns the real property when the rate is set.

* * *

(4) Environmental remediation costs incurred by a gas company may not be included in the gas company's necessary and proper expenses if a court of competent jurisdiction determines that the proximate cause of the environmental contamination is a result of the gas company's failure to comply with a State or federal law, regulation, or order in effect when the contamination occurred.

With this change in the law, Columbia Gas again sought to recover environmental remediation costs for the Cassidy Property.

D. Commission Case No. 9480: Columbia Gas II

In April 2018, Columbia Gas filed a new application with the Commission, designated case number 9480. As a result of negotiations, Columbia Gas, the Office of People's Counsel ("OPC"), and the Commission's technical staff unanimously agreed to each component of a rate increase except the amount for the environmental remediation costs for the Cassidy Property. On July 31, 2018, the PULJ conducted an evidentiary hearing on the issue of the cost of environmental remediation for the Cassidy Property. At the hearing, the Commission Staff and Columbia Gas presented evidence in favor of the rate increase, and OPC presented arguments against.

After the hearing, in a set of findings and a proposed order dated October 2, 2018, the PULJ approved an adjusted rate inclusive of the cost of environmental remediation for the Cassidy Property. In reaching his...