Montgomery Cnty. v. Genon Mid-Atlantic, LLC, 2626

• Decision Date: 24 April 2018
• Docket Number: No. 2626,2626
• Parties: MONTGOMERY COUNTY, MARYLAND v. GENON MID-ATLANTIC, LLC
• Court: Court of Special Appeals of Maryland

MONTGOMERY COUNTY, MARYLAND v. GENON MID-ATLANTIC, LLC

No. 2626

COURT OF SPECIAL APPEALS OF MARYLAND

September Term, 2016

April 24, 2018

Circuit Court for Montgomery County

Case No. 413285-V

UNREPORTED

Eyler, Deborah S., Kehoe, Battaglia, Lynne A. (Senior Judge, Specially Assigned), JJ.

Opinion by Battaglia, J.

*This is an unreported opinion, and it may not be cited in any paper, brief, motion, or other document filed in this Court or any other Maryland Court as either precedent within the rule of stare decisis or as persuasive authority. Md. Rule 1-104.

Since the 1970's, appellant, Montgomery County, has levied a Fuel-Energy Tax "on every person transmitting, distributing, manufacturing, producing, or supplying electricity, gas, steam, coal, fuel oil, or liquified petroleum gas" in the County, with the rates applied to the "quantities measured at the point of delivery for final consumption in the County." Mont. Cnty. Code, § 52-14(a) (2007). Appellee, GenOn Mid-Atlantic, LLC, is the current owner and operator of a power plant located in Dickerson, a community in the northwestern portion of Montgomery County near the Potomac River, which has been in operation, under various owners, since 1959. The entire net output of the Dickerson plant is distributed to an interstate electrical distribution grid operated by a "Regional Transmission Organization," PJM Interconnection, LLC. None of that net output is subject to the Fuel-Energy Tax, as it is exclusively for wholesale distribution, which is exempt and, in any event, subject to pre-emptive federal regulation.¹

The Dickerson plant also consumes a certain amount of its output for plant operation. That locally consumed output, known as "station power," had never been taxed by the County under the Fuel-Energy Tax until 2013, when the County retroactively sought to impose the tax on the Dickerson plant's "station power,"² beginning in 2010, claiming that GenOn had been, in effect, delivering electricity to itself.

After the County, through its Department of Finance, in 2013 presented GenOn with a bill for more than $14 million dollars in back taxes and penalties, beginning in 2010, GenOn filed a petition of appeal in the Maryland Tax Court, challenging the County's new interpretation of Section 52-14. In December of 2015, the Tax Court ruled in favor of GenOn, ordering that the County's assessment be "reversed."³ The County,thereafter, filed a petition for judicial review in the Circuit Court for Montgomery County, seeking to overturn the decision of the Tax Court. The circuit court, however, upheld the Tax Court's ruling that Section 52-14 does not authorize the County to levy a tax on "station power." The County then noted this appeal. We shall affirm.

BACKGROUND

The Fuel-Energy Tax was first enacted by the Montgomery County Council in 1971. 1971 L.M.C., ch. 52, § 1. In its original form, Section 52-14 "imposed a tax upon every person transmitting, distributing, manufacturing, producing or supplying electricity, gas, steam, coal, fuel oil or liquefied petroleum gas in the county." Mont. Cnty. Code (1972), § 52-14(a). The tax expressly did not apply, however, "to the transmission or distribution of electricity, gas, steam, coal, fuel oil or liquefied petroleum gas in interstate commerce through the county, which are excluded from the taxing power of the county, under the Constitution of the United States." Id. The proscription was further limited by the provisos that the "tax shall not be imposed when the fuels or energies are used to convert to another form of energy which will become subject to tax" and that the "tax shall not be imposed at more than one point in the transmission, distribution, manufacture, production or supply system." Id. And, most pertinent for our purposes, Section 52-14(a) provided: "The rates of tax shall be applied to the quantities measured at the point of delivery for final consumption within the county."

Section 52-14 underwent minor revisions over the years so that, in 2010, it provided as follows:

(a) A tax is levied and imposed on every person transmitting, distributing, manufacturing, producing, or supplying electricity, gas, steam, coal, fuel oil, or liquefied petroleum gas in the County.

The County Council must set the rates for various forms of fuel and energy by resolution adopted according to the requirements of Section 52-17(c). The Council may, from time to time, revise, amend, increase, or decrease the rates, including establishing different rates for fuel or energy delivered for different categories of final consumption, such as residential or agricultural use. The rates must be based on a weight or other unit of measure regularly used by such persons in the conduct of their business. The rate for each form of fuel or energy should impose an equal or substantially equal tax on the equivalent energy content of each form of fuel or energy for a particular category of use. The tax does not apply to the transmission or distribution of electricity, gas, steam, coal, fuel oil, or liquefied petroleum gas in interstate commerce through the County if the tax would exceed the taxing power of the County under the United States Constitution. The tax does not apply to fuel or energy converted to another form of energy that will be subject to a tax under this Section. The tax must not be imposed at more than one point in the transmission, distribution, manufacture, production, or supply system. The rates of tax apply to the quantities measured at the point of delivery for final consumption in the County.

* * *

(c) Every person who transmits, distributes, manufactures, produces, or supplies fuel or energy in the County must pay the tax and report any information required by the Director of Finance for each calendar month on or before the fifteenth day of the following month. With the written permission of the Director of Finance, a person who regularly owes taxes under this Section may pay the tax and make reports on a quarterly basis, on or before the fifteenth day of April, July, October, and January in each year for the preceding 3 months.

* * *

(f) It shall be the duty of every person liable for the payment to the county of any tax imposed herein to keep and preserve, for a period of two (2) years, such suitable records as may be necessary to determine the amount of such tax as he may have been liable for the county, which records the director of finance shall have the right to inspect at all reasonable times.

* * *

Mont. Cnty. Code (2007), § 52-14 (emphasis added). From 1971 until 2013, the County never imposed on GenOn, or any of the previous owners of the Dickerson plant, the Fuel-Energy Tax under Section 52-14 for "station power," which is consumed on premises and not delivered to another party.

In 2010, Montgomery County Councilmember Roger Berliner introduced a bill to impose a "Carbon Tax" of $5 per ton of carbon dioxide on "any carbon emitter [doing business in Montgomery County] who pollutes over one million tons of carbon dioxide in a calendar year." The bill's stated purpose was "to reduce [the County's] greenhouse gas inventories and shrink its carbon footprint." Councilmember Berliner explained in his proposal to the Council that the Dickerson plant "emits over 3 million tons of carbon dioxide a year," which is "by far the largest single source of greenhouse gas emissions in the County," and that the proposed tax would "generate more than $15 million a year for the County and create an additional economic incentive" for GenOn to reduce emissions. The councilmember further advised that the proposed Carbon Tax would have "NO DISCERNABLE impact on PEPCO⁴ ratepayers according to [PEPCO] officials whohave analyzed the proposed tax" because GenOn sells its power at a competitive auction and "does not have enough 'market power' to raise the price of power unilaterally." The County Council enacted his proposal, Expedited Bill⁵ 29-10, in May of 2010.

In response, GenOn sought an injunction in the United States District Court for the District of Maryland to prevent the enforcement of Bill 29-10 because, it contended, that enactment violated the United States and Maryland Constitutions. GenOn Mid-Atlantic, LLC, v. Montgomery Cnty., Md. ("GenOn I"), 650 F.3d 1021, 1023 (4th Cir. 2011). "The district court noted that the charge had some indicia of a regulatory fee, but ultimately concluded that it was more like a tax for purposes of the Tax Injunction Act,"⁶ and it "dismissed GenOn's suit." Id. GenOn noted an appeal to the United States Court of Appeals for the Fourth Circuit.

The Fourth Circuit Court of Appeals recognized that the "only issue" before it was whether Bill 29-10 imposed "a tax that lies outside [its] jurisdiction" or "a fee that lieswithin it." Id. Accordingly, the federal appellate court explained that its focus was on "whether the charge is levied primarily for revenue raising purposes, making it a 'tax,' or whether it is assessed primarily for regulatory or punitive purposes, making it a 'fee."' Id. (citation and quotation omitted). It had no difficulty in concluding that the purported "tax" imposed under Bill 29-10 was actually a "punitive fee" because its "burden [fell] on GenOn alone," as the County Council was "well aware" at the time of enactment.⁷ Id. at 1024. Moreover, the Fourth Circuit concluded, the Carbon Tax had a "plainly regulatory purpose," namely, "to advance [the County's] program of reducing greenhouse gas emissions." Id. at 1025. One week after the Fourth Circuit reversed the District Court and remanded the case, the Montgomery County Council enacted Expedited Bill 24-11, repealing Expedited Bill 29-10, and the County moved to dismiss the federal case.

Having been rebuffed in its attempt to impose a Carbon Tax on GenOn, the Montgomery County Department of Finance, in June of 2013, notified GenOn that it would begin assessing the Fuel-Energy Tax on the "station power" generated and consumed at the Dickerson...